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Venture Capitalists go gaga over Data Management and Virtualization

For the first time in more than a year, software companies garnered more start-up cash than any other industry sector in the second quarter, according to survey findings from the MoneyTree Report issued by PricewaterhouseCoopers and the National Venture Capital Association. Biotechnology investments checked in second at $1.17 billion during the quarter, followed by medical devices and equipment and telecommunications at $995 million and $476 million, respectively.

Before you quit your job to start a software company, however, it's important to understand that the VC environment is far more restrained than it had been during the dot-com boom. In fact, today's renewed enthusiasm among VCs pales in comparison to staggering cash infusions that accompanied the peak of the dot-com frenzy.

While it's true that venture capital firms invested more than $1.5 billion in software companies in the second quarter this year, total venture capital spending in the past year totaled a respectable $27.4 billion -- still about $1 billion less than companies received in the first quarter of 2000 alone.

"We're coming out of an environment where software had been fully funded from about 1990 through 2002," Mark Sherman, general partner at Menlo Park, Calif.-based Battery Ventures, said in an interview with InternetNews.com. "Software companies just continued to be aggressively funded by lots and lots of companies. But that all came to an end when the bubble burst, mainly because there were so many enterprises that suddenly had to rationalize the technology investments they made."


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